Electric vehicle giant Tesla Inc TSLA reported first quarter financial results after the market close Wednesday. Analysts are sizing up the results and the comments from CEO Elon Musk on what’s ahead for the automaker.
The Tesla Analysts: Morgan Stanley analyst Adam Jonas has an Overweight rating and lowered the price target from $220 to $200.
Oppenheimer analyst Colin Rusch has a Perform rating and no price target.
Needham analyst Chris Pierce has a Hold rating and no price target.
Bernstein analyst Toni Sacconaghi has an Underperform rating and $150 price target.
Related Link: Trading Strategies For Tesla Stock After Q1 Earnings
The Tesla Takeaways: Jonas said Tesla and the automotive sector face “historic and uncertain times.”
Musk "understands Tesla’s place in automotive history. The company is in the early innings of ‘investing’ its cost leadership (down) into price (down),” the Morgan Stanley analyst said.
The analyst offered a warning for traditional automakers and Tesla competitors as Tesla lowers prices on vehicles and sees lower operating margins.
“As Tesla’s margins fall, competitors may need to re-assess their EV strategies.”
Jonas said there were comments from the first-quarter earnings call that could be remembered for years to come.
“Particularly Elon Musk’s statements that the company could potentially sell a car at a loss today in order to capture far larger lifetime value of the vehicle’s recurring revenue going forward.”
The expectation isn’t that prices get cut to break-even operating margins, but the comment could show where Tesla is eventually headed, he said.
Rusch said Tesla’s strategy has shifted and the automaker is now focusing on profitability per customer instead of near-term cash flow.
“We believe the Tesla story is transitioning as the company reaches higher delivery volumes and prepares for an electrified, autonomous future,” the Oppenheimer analyst said.
The analyst sees margin pressure for Tesla in the short-term, which could be a concern for shareholders. This comes as the company is focused on growing its user base with upgradeable monetization options.
“This approach has the side benefit of making EV market entrance extremely expensive for competition as TSLA leverages its cost advantage.”
Pierce said Tesla is playing the “long game,” which could be troublesome for impatient investors.
“We reiterate our Hold rating on TSLA post 1Q23 results that increase our negative bias towards the stock in the near term,” the analyst said.
Needham expects more price cuts from Tesla as it tramps production capabilities.
“Tesla has two choices, both of which drive lower margins, either slow production and fixed cost absorption, or maintain production and lower vehicle prices. TSLA has chosen the second option, looking to increase fleet size in the near term ahead of longer term revenue opportunities,” Pierce said.
The analyst said Tesla's bet on autonomous driving could be “high-risk, though potentially high-reward.
“We understand the math, that if 1 million TSLA drivers purchase FSD for $15,0000 we are speaking about a $15B revenue opportunity with software-type margins. However, we struggle to see how this can be pulled forward meaningfully and viewed as a potential near-term event.”
Sacconaghi called the first quarter financial results from Tesla disappointing, noting a miss on automotive gross margins.
“The tone on Tesla’s call was cautious – ‘stormy weather for now … sunny in spring next year’ – and the company’s rhetoric shifted meaningfully,” Sacconaghi said.
The analyst said it's concerning that Tesla is willing to accept lower margins and also has challenging demand.
“Tesla price reductions this year appear to have had only a short-term impact on expanding demand and we believe additional price cuts in China and Europe are likely in Q2.”
The analyst said he is struggling to see how Tesla will be able to meet expectations of 2.4 million to 2.5 million units without a new model or more price cuts.
“Make no mistake – recent price cuts in Q2 reflect Tesla’s needs to stimulate demand and are an explicit trade off of margins for volume.”
TSLA Price Action: Tesla shares are down 7.45% to $167.14 on Thursday.
Photo courtesy of Tesla.
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